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Forex - AUD/USD Rally Stalls – Pullback Likely?

Forex - AUD/USD Rally Stalls – Pullback Likely?

Research, Research Team

Main Points:

AUD/USD rally stops ahead of major resistance, pullback is likely from 0.9076

• Bias is bearish as far as 0.9085 resistance remains intact

• Australia’s housing price index surprisingly jumped by 3.4% in the 4th quarter

AUD/USD, on Tuesday, stalled upside movement just ahead of a critical resistance level. The pair is likely to begin a correction from its current levels based on price action analysis. The AUD is being traded near 0.9041 against the USD at 12:15 GMT during the London session.

Immediate resistance can be noted around 0.9076, the 38.2% fib level, ahead of 0.9100, which is the psychological level and the 100 Daily Moving Average (DMA). A break and four-hour close above 100 DMA shall expose 0.9150, i.e. the 200 DMA and then the 0.9200-9210 handle, which is the 50% fib level. It is important to mention that 0.9085, which is the swing high of the previous wave, is currently acting as the critical resistance zone. Bias will remain bearish for AUD/USD as far as the 0.9085 resistance remains intact. In my opinion the pair shall hold off the 0.9085 resistance because in the long term, the Australian dollar is headed to 0.8550, i.e. the 50% fib level of the entire move from 2008 to 2011.

Forex - AUD/USD Daily Chart

Forex-AUD-USD-Rally-Stalls-Pullback-Likely-0009_body_Image28.jpg, Forex - AUD/USD Rally Stalls – Pullback Likely?

On the downside, support can be seen near 0.8890-0.8913, which is a convergence of the 23.6% fib level and the 55 DMA, ahead of 0.8860, the 50% fib level of the recent move. We might see a limited pullback from this level. A break and daily close below 0.8860 shall expose 0.8755, i.e.the 76.4% fib level and the last major support before the swing low of the previous wave.

The Commodity Channel Index (CCI) is retreating from extreme overbought territory on the daily chart. The Relative Strength Index (RSI) is showing a 66.00 reading on the daily timeframe , meaning AUD/USD is very close to the overbought zone. MACD is not diverging at any timeframe.

A housing report by Australia’s bureau of statistics showed that the average price of homes in major cities surged drastically during the fourth quarter. Real estate prices rose 3.4% in the previous quarter as compared to the third quarter. Analysts predicted a 3.0% increase in prices. Moreover, the median price of homes rose 9.3% in the last quarter as compared to the same quarter a year before.

Hours after the release, we saw approximately a 100-pip rally in the AUD/USD pair. On February 4th, the Reserve Bank of Australia (RBA) kept its benchmark interest rate, or overnight lending rate, unchanged at 2.5%, in line with expectations. In a monetary policy statement, RBA governor Glenn Stevens expressed concerns on the “Uncomfortably High” exchange rate. “We recently observed some depreciation in the Australian Dollar, which if sustained, would definitely assist economic growth,” Stevens said.

Meanwhile, the Federal Reserve’s new head Janet Yellen, yesterday assured everyone that no major shift in monetary policy is expected. She praised Bernanke's policies and pledged to carry on gradual tapering in Quantitative Easing (QE) worth $65 billion per month. She downplayed a recent report by the US Labor Department that showed non-farm payrolls rose way slower than expectations. “Only a major change in labor market could instigate the Federal Open Market Committee to consider revision of QE tapering policy,” Yellen stated.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.